Archive for August, 2010

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“I don’t watch metrics on a daily basis because I don’t make metrics-based decisions on a daily basis”Patrick Mackenzie

Q: Can you share the key metrics you watch on a daily basis? Why are they important to you?

A: I have published a variety of stats but I don’t watch metrics on a daily basis because I don’t make metrics-based decisions on a daily basis, and absent making decisions watching metrics is only as productive as playing WoW.

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“I used to think I had ambition…but now I’m not so sure. It may have been only discontent. They’re easily confused.”Rachel Field

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“Late to bed, and late to rise, makes a man sick, poor, and stupid.”Goodman Ace

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“No man is rich whose expenditure exceeds his means; and no one is poor whose income exceeds his outgoings.”Thomas Chandler Haliburton

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“The point of forecasting is not to attempt illusory certainty, but to identify the full range of possible outcomes.”Paul Saffo

Mightyverse is for people interested in language. We are building a database of words, phrases, and sentences translated from one language to another, including jokes, slang, lyrics, localisms, technical terms — anything you can imagine expressing.

Earlier Sarah was one of the co-founders of CoSA, The Company of Science & Art. The founders consulted part-time using their own software libraries to bootstrap a product business. This led to the creation of After Effects (acquired by Aldus, and subsequently Adobe).

I will outline some important ways to monitor information about your business and industry on the web. The web has become the primary medium of business communication and information gathering: it is imperative that you learn to monitor new developments and relevant events for your job or business. We will explore a range of tools and time saving tips to keep abreast within your industry of clients, competitors, and relevant developments. This session will explore:

Startups have fewer meetings than larger companies but entrepreneurs still need to make those meetings effective, in fact there is less margin for unproductive meetings in a startup than there is in a larger firm. Here are two sources of good information on effective teams and how they meet:

James Shonk’s “Working in Teams” is a great place to start (and available used for a penny plus shipping on Amazon).

Process: how are we going to work together, what are the rules for interacting?

Relationship: how do we feel about each other?

While poor morale or interpersonal conflict can often be a harbinger for deeper problems, it’s much more effective to make sure that everyone is clear on the answers to the following two questions before analyzing particular processes or interactions:

Are the goals for the team/group clear and agreed to?

Are the roles that each attendee will play in contributing to them clear and agreed to?

One key metric for a team is interdependence: if you don’t need a member of the team to accomplish the key goals, shrink the size of the meeting and see if that improves focus and traction.

Lopp offers another perspective on meetings in a product development environment that complements Shonk. He suggests that every successful meeting needs:

an agenda

a referee to keep the team making progress.

We take part in a number of working meetings with founders where it can sometimes seem that more heat than light is shed on a topic. Most of the founders we work with are engineers or scientists and they typically chose those careers because their underlying personalities are more comfortable interacting with things and ideas than people. There can be a temptation to try a new technology or software tool to address meetings that have become dysfunctional

A better place to start is to make sure that the goals are both energizing and challenging for your team. And that each member has a key role to play. That being said we have found that using a wiki page for a common agenda and minutes/action-items works much better than e-mail for teams up to a dozen or so and creating a parallel chat session if you are on a conference call allows members to add quick comments, suggest related URLS, raise their hand to speak, and capture shared notes contemporaneously (which not only adds value but demonstrate that they are actively listening).

We will outline some important tips and considerations when choosing a partner, sub-contractor, or alliances members that will help grow your business. We will explore a range of working relationships including employees, contractors, alliances, partners and co-owners. We will look these relationship roles and tips for structuring these deals.

Theresa Shafer is a hardware engineer and a mom, with a do-it/done methodology.

Sean Murphy has taken an entrepreneurial approach to life since he could drive.

They have served as an advisor to dozens of startups, helping them explore new options and bring their businesses to new levels. SKMurphy, Inc., focuses on early customers and early revenue for software startups, helping engineers to understand business development. Their clients have offerings in electronic design automation, artificial intelligence, web-enabled collaboration, proteomics, text analytics, legal services automation, and medical services workflow.

We posted the interview I did with Floyd Tucker of DreamSimplicity about a month ago but in the last two days I have had two people comment to me directly and one tweet about my “three equations and three unknowns” answer:

FLOYD TUCKER: […] Can you tell me a little bit about the early customer stage?

SEAN MURPHY: We just spend a lot of time on this. It’s a very different sales style than you’ll see later on. It’s a conversational sales style. It’s much more about understanding the problem.

You’re trying to solve three equations, three unknowns:

Are you talking to the right people?

Do you have the right features?

Do those features translate into benefits that are going to be useful to them?

Here are three strategies that founders often use to answer these three interrelated questions, the likely results that ensue, and how we help them make key adjustments to get early customers and early revenue.

Current Strategy: Demo the product to anyone who will sit still. And by demo I mean explain how the product works.

Likely Result: On a statistical basis you may ultimately encounter a visionary customer who can intuit the benefits and determine that it’s worth the risk to work with you. One symptom we often see for this is that we ask a team how they have found their customers and they say that the customers have found them.

Our Fix: This is also why we are huge fans of Peter Cohan’s “Great Demo” methodology (see Great Demo Workshop Sept-15 2010) because he addresses the need to talk to the right target about a problem they are interested in solving in a way that they understand by stressing a few key features.

Current Strategy: Talk to a number of target customers, compile a large wish list of features, return to BatCave and start work on a one year roadmap.

Likely Result: The one year roadmap takes much longer than anticipated. But the founders don’t leave the BatCave until they are within two weeks to two months of running out of money.

Our Fix: Trimthe feature set to a minimum set that firms will pay for. Possibly offer consulting mixed with product licensing to enable engagement with an immature product to address cash flow issues. Get out of the BatCave for further conversations to discover and validate potential customers an ongoing basis.

Current Strategy: Talk to a number of target customers about a challenge they face (e.g. saving money, increasing productivity, reducing certain kinds of errors).

Likely Result: When the prospect agrees that they have the need be unable to explain specific features that can actually achieve it, or be unable to explain how the particular person you are talking to would be accomplished in particular for the person you are talking to. This is the GEICO “Would you like to save money on your car insurance?” pitch without the ability to offer a quote specific to their car, driving record, and other relevant particulars.

Our Fix: Focus very specifically on what your product capabilities mean for who you should talk to and how it will make a measurable difference in a problem or challenge they are willing to spend money to address. Adjust your target and connect the dots very quickly and specifically to the benefit. This is component of compelling demos is also covered in Peter’s workshop.

We don’t talk about it much here at HN, but think about it. Every man-made object you encounter every day was manufactured somewhere. And moved, more than once. Now add in all the sales, marketing, customer service, operations, accounting, finance, human resources, etc., etc., etc. needed to support that manufacturing and distribution. Next, add financial markets, healthcare, energy, entertainment, etc., etc., etc. and you have tons of stuff. But you don’t see it and rarely think about it. Kinda like most of the iceberg being underwater.

And all of this needs software. And most of what they have sucks. I mean really sucks. Enterprise software is so bad that there are multi-billion dollar industries devoted to consulting on how to use it, how to share it, and how to store it in data warehouses and harvest it. It’s so bad that lots of people have to dump the data out of their enterprise systems and into Microsoft Excel just to get anything done.

I agree with Ed that there are enormous opportunities for startups in the B2B or Enterprise market. One of the reasons that Enterprise software is so poor is that the IT department often does not make usability a priority and has a lot of difficulty determining the productivity impact of a new application. They also strongly prefer their current vendors and for the most part are loathe to do business with startups. In 2007 I blogged about “Selling Around IT in Larger Firms” and suggested these rules of thumb:

Large firm IT departments are “gatekeepers”. Their job is to keep the enterprise network computing infrastructure safe and operational. New software from a new vendor is almost always viewed as a threat. Most of the time, they will say NO to any new software. Most of the time our clients have to sell around them. Here’s five tips for doing that:

Provide a service (deliver the results of you running your software) instead of selling software.

Package your offering as SaaS at a price that’s below the radar of IT.

Leverage an existing partner: Who else is your prospect buying from?

Find someone who is in a lot of pain whose needs have been ignored by IT.

Find someone whose needs span more than one IT administrative boundary, so that no single IT group views satisfying the need as their obligation.

The other unfortunate aspect of a career in IT is that often turns software developers into anti-matter for customer development techniques and any marketing or sales approach that is designed to foster adoption. Most IT folks are handicapped by a tendency to dictate applications that can and cannot be used and have not mastered the skills of appreciative inquiry and conversational selling that are key to uncovering a prospect’s needs.

Alan Grinshtein was also impressed by Ed Weissman’s post and used it as a point of departure in “The Enterprise Software Opportunity” to lament that too many startups focus on advertising driven business models:

The Sirens of Social have seduced too many good minds to build and crash startups. There are too many brilliant problem solvers who aren’t developing brilliant solutions for business. Enterprise software is particularly awful. Imagine the progress that could be made and the money that’s being left on the table. They could be blowing competition out of the water. Sad.

I think three reasons for this are:

understanding the value of your offering,

negotiating for a fair price with prospects,

continuing to enhance your offering so that it provides more value that customers are willing to pay for

are all hard problems.

As a result, many software entrepreneurs succumb to one of two temptations: either they treat themselves as the first customer (“scratch your own itch”) and build what they would like to use–making the critical assumption that they are an accurate proxy for other prospects without validating their hypotheses–or they “give the software way” to build up a large audience that they will figure out how to monetize later.

And Now a Word From Our Sponsor…

If you are hard at work on a B2B software product but are having trouble determining how to price it, or negotiating for the value that it offers, or locating a good niche to target for early adopters, please contact us. We would be happy to explore how we can help.

Are you considering joining a startup? Sean Murphy, CEO at SKMurphy, will host a panel outlining important tips and issues to consider if you are investing your time in a startup. This session will explore: difference between employees, contractors, alliances, partners and co-owners; defining the key roles in a startup; what partners need from you; how to pitch to a co-founder.

I can now announce the panel of three startup CEOs who will offer their perspectives on the issues and answer questions from the audience.

Peter Hoffman CEO of Interactive Mobile Solutions. IMS helps event planners enhance their attendees’ conference experience through an innovative, mobile technology solution called ConferenceConnect. Peter has over 25 years of creating and directing conferences and leadership symposiums in education, non-profit and corporate environments. Most recently he was Senior Manager for Apple Higher Education Advocacy and Leadership. Peter has also held positions as Vice President of Events and Marketing for the Community College Foundation and Executive Director for the Ohlone College Foundation.

Merc Martinelli CEO of Verdafero. Verdafero Inc. has developed a SaaS platform that can be used for sustainability planning, energy efficiency and carbon management services for small and medium enterprise businesses. Merc is an experienced tech executive who previously worked at Cisco Systems where he led the new product introduction department within the multi-billion dollar Enterprise Line of Business. Earlier in his career he held leadership positions at KLA Instruments and was a pilot in the USAF.

Matt Cameron CEO of Corporate Catapult. Matt is a native of New Zealand (they even have colour TV there now) currently residing in San Francisco. He started his first business at 25 (a food delivery service) and is now on his fourth start-up: Corporate Catapult Inc, a career acceleration tool that is presently in private alpha. On occasion he will admit to having also worked for Hewlett-Packard, Wang, IBM and EDS in sales roles. Most recently, Matt was employee #6 for Salesforce.com Asia as Regional Sales Director.

This will be an interesting panel if enough folks vote to include it in the final program. Vote here.

I think an alternative to #1 is that ad driven sites tend to promote more page views and page refreshes, which tend to lower productivity compared to a well designed subscription driven site (so they value their employees time, and the work that they deliver, more than they want to get a “free app”). Also, some amount of screen real estate has to be lost to ads that could instead be applied to improving the information content on the page directly relevant to the task the employee is performing.

#2 is very under-appreciated by the advertising driven sites. I think that startups stay in “free beta” too long in particular. I only want to use an application in support of my business, especially if it impacts prospects or customers, if I know the developers will respond, and the default terms of service typically say that they can disappear without warning (along with my data). Even a 15-30 day grace period with a warning for shutdown would be a huge improvement.

#3 points out a misunderstanding between how technologists or solo consultants may view a new tool and the total cost of adoption that a small business faces. A small business has to bear a lot of cost in workflow and process changeover. They do want you to stick around because their true cost of adoption is much higher than what they are paying you.

Jenna Wortham’s “Fraternity of the Wired Works in the Wee Hours” in the New York Times on July 25 highlighted an interesting new trend in co-working: the 10pm to 4am shift. Profiling the “New York Nightowls” (tagline “New York Nightowls is a late night co-working club for professionals”) she opens with: (hyperlinks added)

After college, most people do their best to avoid having to pull any more all-nighters. But for some, even after graduation, the wee hours of the morning are the most productive.

“The goal is to come, get inspired, meet new people and get work done,” said Ms. Lambke, a creative consultant. “It’s six hours of uninterrupted, productive time where you’re surrounded by other creative people doing awesome things.”

Also folks that are part of global teams may be up at this hour if it’s part of the workday for the bulk of their team. The New York Nightowls have met weekly for at least the last 17 weeks according to their Meetup site http://www.meetup.com/NY-Nightowls/ and groups have sprung up in a number of other cities:

I think there are interesting implications for co-working facilities, running a second and third shift in some locations might appeal to not only to natural nightowls but also members of global teams who are working time shifted.

Second Derivative’s Great Demo! seminar on September 15, 2010 helps frustrated sales, marketing and presales professionals and entrepreneurs improve their skills and gain dramatic results. Peter Cohan helps organizations like Keynote Systems and Phreesia put the “Wow!” into their demos to make them crisp, compelling and successful.

“I believe everyone on the team will find that your training and demo workflow has been extremely effective – we are confident that we’ve closed business directly as a result of applying Great Demo! practices. The Sales Engineers started using what they learned in the training and were amazed at the results! Their respective Account Managers were so amazed they all went out and bought the book, now we will be doing a training for the whole sales force!” reported Robert Hughes, Global Director of Solution Consulting at Keynote Systems, the leading provider of on-demand test and measurement products for mobile communications and the Internet.

“Peter Cohan’s Great Demo method really works. It helped us win DEMOgod, and it has allowed us to explain our offering much more clearly to prospects.” Chaim Indig, CEO, of Phreesia, the leader in patient check-in, with a network of thousands of clinicians nationwide.

Co-sponsored by SKMurphy, Inc., the Great Demo! Workshop is now available in an open enrollment format. These workshops are perfect for individuals looking for sales and demo skills training.

During the full day Workshop at the Moorpark Hotel in San Jose, California, Peter Cohan will present tips and best practices for demos whether face to face, in a webinar, as a screencast, or as a self-running demo.

This highly interactive, practice-driven training class outlines a framework for the creation and delivery of improved demos and presentations to enable increased success in the marketing, sales, and deployment of software and related products. Attendees can also bring their demo and have it critiqued.

Peter Cohan is the founder and a principal of The Second Derivative, a consultancy focused on helping software organizations improve their sales and marketing results. In July 2004, he enabled and began moderating DemoGurus®, a community web exchange dedicated to helping sales and marketing teams improve their software demonstrations. In 2003, he authored Great Demo!, a book that provides methods to create and execute compelling demonstrations. The 2nd edition of Great Demo! was published March 2005.

My first real job was as a furniture mover when I was 16. When it came time to put together a resume as I was graduating from college “picked up and moved heavy objects without getting hurt” was the best description I could come up with. I came across a copy of that first resume over the weekend and tried to recapture my frame of mind when I wrote it. I couldn’t.

“Try as we will, we cannot honestly recall our youth, for we have lost its main ingredient: suspense.”
Mignon McLaughlin

“There is always some specific moment when we become aware that our youth is gone; but, years after, we know it was much later.”
Mignon McLaughlin

The point of forecasting is not to attempt illusory certainty, but to identify the full range of possible outcomes. Try as one might, when one looks into the future, there is no such thing as “complete” information, much less a “complete” forecast. As a consequence, I have found that the fastest way to an effective forecast is often through a sequence of lousy forecasts. Instead of withholding judgment until an exhaustive search for data is complete, I will force myself to make a tentative forecast based on the information available, and then systematically tear it apart, using the insights gained to guide my search for further indicators and information. Iterate the process a few times, and it is surprising how quickly one can get to a useful forecast.

Since the mid-1980s, my mantra for this process is “strong opinions, weakly held.” Allow your intuition to guide you to a conclusion, no matter how imperfect — this is the “strong opinion” part. Then –and this is the “weakly held” part– prove yourself wrong. Engage in creative doubt. Look for information that doesn’t fit, or indicators that pointing in an entirely different direction. Eventually your intuition will kick in and a new hypothesis will emerge out of the rubble, ready to be ruthlessly torn apart once again. You will be surprised by how quickly the sequence of faulty forecasts will deliver you to a useful result.

This is a difficult perspective to maintain in the face of so much economic turbulence and continual technological revolutions. But until I can come up with a better one it’s what I am going to stick with.

Startups and small firms are able to avoid macro-economic trends by navigating to emerging opportunities. Large firms are less nimble and find it harder to escape average performance. It’s not clear to me that Silicon Valley as a whole can escape the effects of being situated in a California economy that is collapsing and a state government that is effectively bankrupt. But individual firms can move to segments of the economy that will grow (or at least remain stable).

At least that’s what I keep telling myself: “In the midst of this downturn, keep looking for where the new opportunities are emerging.”

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Postscript Wed-Aug-18: I came across this quote today

“The trouble with our times is that the future is not what it used to be.”Paul Valery

and realized that this is the entrepreneur’s perpetual challenge: we have to let go of our nostalgia for our imagined (or anticipated) future and deal with the real options that we have created or are otherwise available to us.

Are you considering joining a startup? Sean Murphy, CEO at SKMurphy, will host a panel outlining important tips and issues to consider if you are investing your time in a startup. This session will explore: difference between employees, contractors, alliances, partners and co-owners; defining the key roles in a startup; what partners need from you; how to pitch to a co-founder; joining a global team.

It will be an interesting panel if enough folks vote to include it in the final program. Vote here.

Update August 24: I am pleased to announce the panel of three startup CEO’s who will offer their perspectives on the issues and answer questions from the audience.

Peter Hoffman CEO of Interactive Mobile Solutions. IMS helps event planners enhance their attendees’ conference experience through an innovative, mobile technology solution called ConferenceConnect. Peter has over 25 years of creating and directing conferences and leadership symposiums in education, non-profit and corporate environments. Most recently he was Senior Manager for Apple Higher Education Advocacy and Leadership. Peter has also held positions as Vice President of Events and Marketing for the Community College Foundation and Executive Director for the Ohlone College Foundation.

Merc Martinelli CEO of Verdafero. Verdafero Inc. has developed a SaaS platform that can be used for sustainability planning, energy efficiency and carbon management services for small and medium enterprise businesses. Merc is an experienced tech executive who previously worked at Cisco Systems where he led the new product introduction department within the multi-billion dollar Enterprise Line of Business. Earlier in his career he held leadership positions at KLA Instruments and was a pilot in the USAF.

Matt Cameron CEO of Corporate Catapult. Matt is a native of New Zealand (they even have colour TV there now) currently residing in San Francisco. He started his first business at 25 (a food delivery service) and is now on his fourth start-up: Corporate Catapult Inc, a career acceleration tool that is presently in private alpha. On occasion he will admit to having also worked for Hewlett-Packard, Wang, IBM and EDS in sales roles. Most recently, Matt was employee #6 for Salesforce.com Asia as Regional Sales Director.

I am delighted to be able to return to EE Times as a regular columnist/blogger after a sixteen year absence. Richard Wallace, now blogging at “The Next Silicon Valley“, asked me to write “Nickel Tours of the ‘Net” which cataloged the impact of the Internet on Electronic Design as websites first started to become common in 1994. And now Junko Yoshida has asked me to look at innovation and entrepreneurship in the broader electronic systems design ecosystem.

I recently had the opportunity to sit down with Paul van Besouw, CEO of Oasys Design Systems, and interview him on lessons learned from his entrepreneurial efforts at Ambit and Oasys. I have added hyperlinks where I felt they would provide context. […]

Q: What are the two or three things that you have been able to accomplish that you take the most pride in or satisfaction from?

We created a new technology with a small team, and little funding. At first, we were completely self-funded. We rented a small apartment where we spent about a year just coding everything from scratch. Later, we received some seed funding from several EDA-savvy angel investors, which allowed us to move into a “real” office.

We had a working prototype by 18 months to show other angel investors, which allowed us to secure a bit more funding. I was able to attract the attention of some of the best people in the industry. It took some convincing, but I was also able to attract Joe Costello‘s attention. He is now a member of our board of directors. […]

Q: What development, event, or new understanding since you started has had the most impact on your original plan? How has your plan changed in response?

Venture capital for EDA is pretty much non-existent. This was a new reality and we were forced to do things differently. We are working with less money and fewer engineers on a longer development time-line than we would have if we had started Oasys 10 years ago.

Q: Any other remarks or suggestions for entrepreneurs?

[…] What makes EDA both interesting and challenging is that it is not only about the software. In the end, you are building software to build hardware. You have to start with insights into both and learn a lot more along the way. In many cases it is the experience of what does not work that really allows you to focus on the things that do work. EDA software is built on a technology foundation surrounded by algorithms. Starting out, a lot of time is spent on finding out what does not work. There are many details that need to be incorporated to enable your technology to work in an actual production flow.

In a great market — a market with lots of real potential customers — the market pulls product out of the startup.

The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.

[…] Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter — you’re going to fail.

[…] The #1 company-killer is lack of market.
In honor of Andy Rachleff, formerly of Benchmark Capital, who crystallized this formulation for me, let me present Rachleff’s Law of Startup Success:

When a great team meets a lousy market, market wins.

When a lousy team meets a great market, market wins.

When a great team meets a great market, something special happens.

You can obviously screw up a great market — and that has been done, and not infrequently — but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure. Market matters most.

And neither a stellar team nor a fantastic product will redeem a bad market.

Third question: as a startup founder, what should I do about all this?

Let’s introduce Rachleff’s Corollary of Startup Success:

The only thing that matters is getting to product/market fit.

Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.

Lots of startups fail before product/market fit ever happens.

My contention, in fact, is that they fail because they never get to product/market fit.

[Editorial note: this post obviously raises way more questions than it answers. How exactly do you go about getting to product/market fit if you don’t hit it right out of the gate? How do you evaluate markets for size and quality, especially before they’re fully formed? What actually makes a product “fit” a market? What role does timing play? How do you know when to change strategy and go after a different market or build a different product? When do you need to change out some or all of your team? And why can’t you count on on a great team to build the right product and find the right market? All these topics will be discussed in future posts in this series.]

Andreessen posits product-market fit as a one bit variable–either you’ve got it or you don’t. This formulation has had a very strong influence on a lot of customer development thinking ever since. To my knowledge he hasn’t written the follow up posts he promised in 2007 so others have been left to puzzle it out.

I think he got it wrong for several reasons:

Markets evolve, early markets evolve rapidly. Even if customer uptake starts to occur it may falter as customer demand changes.

New products enter the market that change the status quo and render your product less desirable.

New technologies enable new categories of product that obsolete your product or dissolve your niche into a larger market.

I think it’s a fraction that measures the relative fitness at a point in time for a product solving a problem for a particular customer set. If those customers “reference each other’s buying decisions” (to borrow a phrase from Geoffrey Moore’s “Crossing the Chasm”) then you have a market and a measure of product-market fit.

Reading Ben Yoskovitz’s “Product-Market Fit or Market-Product Fit?” crystallized this for me. He argues, as Blank does, that most startups need to “sell the product they have” which means finding a market for the existing feature set.

After all, you don’t just start building the product, launch it and then hope to heck that it works, right? But this happens a lot. We don’t always get to start at Step 1. In some cases there’s a functioning product, a bit of traction, but no clear direction and no scalable opportunities (at least not plainly in sight). So when this happens, what can you do?

Steve Blank talks about this in “Four Steps to the Epiphany.” Instinctually you may think it makes sense to keep building more features or radically change the product. But if the Product-Market Fit isn’t right, more features isn’t likely to solve the problem. And investing in rebuilding the technology is going to take a long time, cost a lot of money and not necessarily guarantee any additional success. Instead, Steve recommends finding a market for the product you have. Take the product, point it at a different market and see what happens. Rinse and repeat.

In my mind that’s Market-Product Fit — finding a market to fit an existing product (vs. building a product to fit an existing market).

For many startups this is what they need to do because they’ve got a product but no market. Find a market. In some respects this is a slight handcuff – you’re not starting from scratch and the product can feel like “baggage” – but before throwing your product in the garbage and starting anew, it’s worth looking for a market where there is a fit. Incidentally, the same holds true for a business model. You may have a product but the wrong business model. You don’t scrap the product, you change the model. That’s very much Market-Product Fit.

Pitch the product you have, but… don’t feel obligated to pitch it exactly as it exists today. Simultaneous to your efforts in finding the right market and business model, you need to be envisioning what I would call “product+”. This isn’t a complete rebuild of your existing product that will take huge development time, but there’s no reason you can’t pitch a modified/extended version of your existing product as you’re discovering the appropriate market, business model and that market’s product requirements. As you’re collecting feedback, and plowing through prospective prospects, you should gain significant clarity on what product+ will look like. That will help you iterate quickly on the product development front. But sell what you have now.

It’s not easy to find a market for an existing product. And the reality is that there may not be a market for the product you have and it will require significant changes or a complete overhaul. (Or it’s time to get into a new business.) But before you get to that stage, stop, pull back and look for a customer base that will pay for what you’re selling. It’s still about following a rigorous Customer Development process, but starting partway through and trying to go back, without going completely back. Think of it as Market-Product Fit.

It’s a little bit like beating swords into plowshares but I think this is a good model and an important re-framing for founding teams to bear in mind. Whether it’s “P-M fit” or “M-P fit” it’s not a binary variable, it’s a fraction between zero and 1 (few products are perfect) that varies over time in response to changes in the market and the availability of new technologies and competing alternatives. Many successful products achieve modest success in an initial niche and then find a much better (and/or larger) niche where they achieve better traction.

Invest BEFORE product/market fit, measure/test to see if the team is finding it, and if so, then exercise your pro-rata follow-on investment opportunity AFTER they have achieved product/market fit. It’s sort of like counting cards at the blackjack table while betting low, then when you’re more than halfway thru the deck and you see it’s loaded with face cards & tens, then you start increasing your betting & doubling-down.

Let’s face it — most venture investors are sheep. We like unfair advantages. We want to know that there is already customers, revenue, and that elusive thing called TRACTION. Unfortunately, if it’s obvious that there is already customers, revenue, and TRACTION then there will likely be a LOT of other investors at the trough, the competition will be fierce, and as a result the price to invest will be high.

Update Oct-25-2010:Patrick Vlaskovits pointed out a blog post by Ben Horowitz–Andreessen’s partner at Andreessen-Horowitz–entitled “The Revenge of the Fat Guy” that I had overlooked. Some of his points seem to contradict Andreessen’s earlier formulation of Product Market Fit as a threshold or a bit, in particular he lists four myths of Product Market Fit:

Myth #1: Product market fit is always a discrete, big bang event.
Myth #2: It’s patently obvious when you have product market fit.
Myth #3: Once you achieve product market fit, you can’t lose it.
Myth #4: Once you have product-market fit, you don’t have to sweat the competition.

Here are two excerpts that elaborate on these myths:

Product market fit isn’t a one-time, discrete point in time that announces itself with trumpet
fanfares. Competitors arrive, markets segment and evolve, and stuff happens—all of which often make it hard to know you’re headed in the right direction before jamming down on the accelerator.

[…]

Some companies achieve primary product market fit in one big bang.

Most don’t, instead getting there through partial fits, a few false alarms, and a big dollop of perseverance.

By the time it got acquired, Opsware had achieved product market fit for a category of software called data center automation.

But it wasn’t at all obvious that was going to be our destination while we were getting there. We actually achieved product market fit in a number of smaller sub-markets such Unix server automation for service providers, then Unix server automation for enterprise data centers, then Windows server automation, and eventually network automation and process automation. Along the way, we also built a few products that never found product market fit.

My brother told me about “The Man Who Walked Around the World,” a 2009 long form commercial for Johnnie Walker that stars Robert Carlyle in a six minute single take. I am not a scotch drinker but I found Carlyle’s delivery of story of the entrepreneurial Walker family very inspiring. In particular I liked this line:

And because there is nothing like a commercial proposition to stir the Scottish heart it quickly grew into an industry, filled with ambitious entrepreneur distillers.

How many takes did you have to do to get the whole thing perfect?
The take that you have seen is the very last take we did at 8pm on the last day of the shoot. Take 40. The tension as we watched Robert do this take was unbelievable. It was such a good take at every stage and so the longer it went on without any fluffs the greater the pressure grew for nothing to go wrong. When he got to the end and I got to call cut there was this huge roar and applause from the crew and agency and I knew we had it.

Where was the film shot and what did the location add to the film?
It was shot near Loch Doyne in Scotland. The landscape is a huge part of it. It’s like another character. Its hauntingly beautiful up there and we were blessed with these lovely clouds that gave us this really lovely brooding look.

What was the most challenging element of the job?
By 5pm on day one we hadn’t managed to do one complete take. We therefore had nothing. We soon worked out that the reason for this was the huge bank of TV’s which we’d placed 2 meters in the wrong position. Robert was having to slow down his walking and speed up his talking in a way that was artificial and was throwing him. There was nothing we could do but rebuild the TV’s which meant wrapping and staring again the next day having achieved nothing on the first day. The following morning there were a lot of anxious faces and murmurings of “fixing it in post”. Then Robert turned up and did the very first take of the day in one. As I said – the man’s a genius.